While different infrastructure sectors such as renewable energy generation, energy transmission and transportation have their unique features, the importance of developing different infrastructure assets in tandem, to maximise both financial and social value creation for India, cannot be overemphasised.
As we push ahead with our renewable energy generation targets and auction capacity, it is crucial to ensure that energy transmission infrastructure grows in parallel. The Green Energy Corridor (GEC), a transmission infrastructure project, is the right move. The creation of the required transmission infrastructure ensures that the renewable energy generated is evacuated effectively and reaches the end user.
An efficient infrastructure has multiple advantages. Firstly, the capacity to evacuate renewable energy optimally ensures that the energy developer gets the best return for the electricity generated, thereby allowing for the best investment returns. Secondly, the end users can often be located at a significant distance from the site of energy generation. Thus, access to clean energy improves for all. Thirdly, the creation of the new transmission infrastructure and improvements to the existing infrastructure creates investment opportunities for all stakeholders.
An aspect that needs attention is that transmission infrastructure can at times require a longer time to plan and build than energy generation infrastructure. Therefore, it is essential that the long-term needs are carefully designed. GEC is the right step, but with the ambitious targets that India has set for renewable energy generation, more such initiatives will be required. Infrastructure assets deliver optimal value and large-scale economic growth when complementary assets are developed simultaneously.
In addition to the above, as energy storage costs drop globally, future generation capacity will incorporate storage capacity. This ability to combine the trifecta of generation, storage and transmission will play a crucial role in pushing forward the increased uptake of renewable energy in India.
The importance of creating an infrastructure ecosystem is best illustrated by offshore wind energy which has received significant attention in Europe and Asian countries such as Taiwan. The coastline in India offers considerable opportunity for offshore wind energy, albeit much clarity on policy at both the central and state level is required. Offshore wind energy as an asset shows just how vital an infrastructure ecosystem is for delivering value through infrastructure assets.
One needs to transport the large wind turbines to the ports using rail, and hence robust rail infrastructure is crucial. Given the large-scale nature of offshore wind projects, specialised ports must be capable of handling the requirements. Such ports will be used to assemble, to some extent, the equipment that needs to be set up in the wind farm.
The port essentially becomes the central point for the offshore wind projects, as the specialised vessels used to transport the equipment as well as the ships required for operations and maintenance will utilise the port. The ports need to have the capacity to handle sophisticated equipment and vessels. The biggest takeaway is that an efficient and value-creating offshore wind energy infrastructure environment requires rail and port infrastructure that can deliver results. One missing link can upset the equilibrium, while an efficient system can help generate significant value.
There is a range of investors, ranging from those that specialise in either transportation or energy, to those that are sector agnostic. The crucial fact is that infrastructure development needs balance across the sectors. Within the energy sector, generation assets must complement transmission assets. Similarly, transportation assets must complement energy assets and so on.
Given the long-dated nature of infrastructure assets, it is essential to plan for a long-term horizon. It is also prudent in some instances to ensure some level of “optionality” in the asset construction by factoring in a certain degree of flexibility in asset creation. Flexibility in asset creation today might have an initial upfront cost, but in the long run, it can serve both investors and policymakers well.
(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. The views expressed are personal. He can be contacted at [email protected] or @Taponeel on Twitter)